Acquiring Beats could reflect change in Apple's core

Miserly, proprietary Apple, with its $160 billion cash stash, rattled the tech world this week when news leaked it would spend $3 billion and change to acquire Santa Monica-based Beats Electronics, the biggest acquisition in the company’s 38-year history.

In Beats, Apple would get a popular high-end headphone and speaker brand as well as a streaming service headed by music moguls.

The deal, first reported by Financial Times, was uncharacteristic of Apple.

A deal this size is more likely to be seen from companies such as Facebook, Microsoft and Google, which have handed over billions for complementary technologies.

Acquiring Beats, which has not been finalized or even mentioned by Apple, could signal a new direction for a company that’s been hounded by critics and fans for not delivering a “revolutionary” new product in the two years since Steve Jobs died.

Stockholders are also hungry to see all that cash do some work for them.

Here’s a look at things you should know about the Beats-Apple deal.

First billionaire rapper

Sean “Diddy” Combs. the singer-songwriter, music producer and actor, is reportedly the richest rapper in the world, with a fortune worth upward of $700 million.

But since Andre “Dr. Dre” Young – the producer behind names like Eminem and 50 Cent – co-founded Beats in 2008, he has risen in the Forbes rankings to just behind Combs, with an estimated wealth of about $550 million.

An online video making the rounds Friday showed Dr. Dre with friends, bragging about how the list needs to be updated: “The first billionaire in hip hop right here from the ... West Coast.”

The co-founders knew Steve Jobs

A decade ago when Apple only put iPods in people’s hands and computers on desks and laps, Dr. Dre popped up in a chat window during one of Steve Jobs keynote speeches.

Dre was promoting the addition of his and other rappers’ music to the iTunes Store and praising the iPod for eliminating CDs.

Years later, his partner at Beats took a stage with tech reviewer Walt Mossberg and remarked on Jobs’ ideas.

“Apple got everything right except that earbud,” said Jimmy Iovine, record producer and co-founder of Beats with Dr. Dre, during the taped interview. “Your sound system is only as good as its weakest link.”

“I just think that he had the right idea,” Iovine said of Jobs, “but that all needs to progress now.”

Music streaming and headphone maker

While the trendy $300 Beats headphones might be what young people are buying, the long-term bet is likely more about the company’s subscription music service.

In 2012, Beats bought MOG, a streaming subscription music service that was squashed by larger rival Spotify. Earlier this year, Beats unleashed a music streaming service built on the bones of MOG.

Meanwhile, Apple is trying to evolve its $1 per song iTunes model that transitioned many away from pirating music early in the 2000s.

The iTunes model has been threatened by services like Spotify and Pandora, which don’t offer music for sale but do provide free ad-supported radio or access to millions of songs for a monthly subscription.

Beats deal no dent in Apple’s stash

Apple makes so much money from sales of iPhone and iPads that its cash reserve continues to grow each quarter at a rate that would mean the Beats deal will be a mere blip on the tech radar.

In March, the amount Apple had in cash was pegged about $160 billion, about one third of which is kept offshore to avoid paying U.S. taxes, Bloomberg reports.

Until Beats, the most notable thing Apple had done with its stash was to plan on spending as much as $130 billion on a capital return program that includes $90 billion in share buybacks.

While Apple frequently buys companies, it typically does so for amounts less than $500 million.

And if it’s a consumer-facing technology, Apple shuts it down and the former company quietly disappears into a secret project at Apple.

That’s probably not the plan for Beats.

“Question is not why are they being aggressive in buying Beats,” pondered high-profile venture capitalist Marc Andreessen on Twitter. “Question is why are they so conservative on not buying everything else?”

No insight to the next big thing

Wasn’t Apple supposed to be working on an industry-redefining television, or maybe a smart watch? Does Beats music service, wireless speakers and high-end headphones have anything to do with those projects?

Do those projects even exist?

So far the secrecy surrounding the Cupertino-based company hasn’t faltered much post-Steve Jobs. The hype for the next best Apple thing has bloggers resorting to 3D printer mock-ups of rumored next-gen iPhones.

Point being, your guess is probably as good as anybody’s as to how Apple might use Beats for future products.

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